Bloomberg

Bloomberg | Quint is a multiplatform, Indian business and financial news company. We combine Bloomberg’s global leadership in business and financial news and data, with Quintillion Media’s deep expertise in the Indian market and digital news delivery, to provide high quality business news, insights and trends for India’s sophisticated audiences.

Market Sees Caputo Exit as Blow When Argentina Needs It Least

(Bloomberg) -- Investors were rattled Tuesday by the resignation of Argentina’s central bank president amid ongoing negotiations with the International Monetary Fund.

Luis Caputo stepped down a day after President Mauricio Macri said a revised deal with the IMF would require a new approach to monetary policy. Market watchers say that the resignation of Caputo -- a former trader who was well-regarded by investors -- adds pressure at a crucial moment for Argentina’s economy. The peso lost 3.4 percent on the day, the worst performance among global currencies.

"Caputo had already established a stable relationship with market participants," Tania Escobedo Jacob, a strategist at RBC Capital Markets in New York, said in an interview. "Doubts and uncertainty are the least Argentina needs right now."

Caputo will be replaced by the deputy economy minister, Guido Sandleris, in a move that signals broad policy continuity.

Here’s what analysts and investors had to say:

RBC’s Escobedo Jacob:

Caputo’s "stance was always orthodox and his responses aggressive when they had to act. They were doing relatively well on the Lebac plan, etc."

"I don’t think unexpected changes like this one are positive signs. Is it because there are disagreements between Macri and the BCRA team? They have been talking about a potential floating band for ARS, which I think would be a very bad idea."

"In general, Argentinian assets are in a very vulnerable situation and any mistake can be very costly in terms of market confidence"

Kathryn Rooney Vera, head of global research at Bulltick Capital Markets in Miami:

"With the negotiation between the IMF and Argentina on a new program in its final innings, the market’s interpretation of Caputo’s unexpected resignation seems to link the two"

"We are expecting news flow around the program from his replacement Guido Sandleris or the IMF soon. The order of news flow thus far has us scratching our heads a little, so more information would be really helpful"

"Due to the absence of full information, the jury is still out there on what the implications might be"

"His resignation does not change our Argentina view, but receiving more information and clarity around the IMF program and its proposed FX regime, as well as proposed fiscal reforms, will be crucial for our outlook"

Paul Greer, a money manager at Fidelity International in London:

"Negotiations with the IMF about an expanded and revamped program have taken longer than most expected"

“Caputo’s resignation will only add to investor uncertainty around the rationale for the departure after only three months in the job"

“Another key question will be what FX regime the IMF will request in the revamped program and if they permit the BCRA to continue depleting its international reserves to support the peso”

“Aside from the IMF negotiations, the main concerns in Argentina are around the magnitude of the recession and the potential political fallout"

“This will remain a key uncertainty for investors over the next 12 months ahead of the October 2019 Presidential elections. Today’s general strikes and rising unemployment will further hit the popularity of Cambiemos”

Alejandro Cuadrado, the global head of foreign exchange at BBVA in New York:

"For an administration that has its own share of behind-the-scenes infighting on economic policy, the positive out-take on this -- even if the IMF is pushing for a more independent central bank -- is that it could help Macri’s team communicate a more unified message to the markets

"The market wants to find good news for Argentina so they might actually take it okay

"In addition, the overall EM risk tone has gotten a little better over the past week so maybe the market is looking to react positively to news out of Argentina"

Appointment of Guido Sandleris as replacement signals that a "unifying message is the direction they’re going for"